April 19, 2016
Citizens Property Insurance Corp. is sharing scant details about the scope of its new managed repair program — a cost-reduction initiative that industry experts figure will be imitated widely throughout Florida's property insurance industry.
The managed repair program is intended to allow state-run Citizens to control the claim from beginning to end. In exchange for a discount, policyholders would agree to use contractors pre-selected by Citizens.
Citizens invited bids to operate the program in September, and in early March the insurer's board of governors approved opening negotiations with Contractor Connection, a repair management service owned by Crawford & Co., a publicly traded company headquartered in Atlanta.
There's no deadline for the negotiation, and no launch date has been set for the program, Citizens spokesman Michael Peltier said this week.
"It's a complicated process, and we're going to proceed cautiously so we do it right," Peltier said. "We are shooting to begin the program sometime in the summer, but a concrete date is not yet set as the contract is not yet finalized."
An agreement between Citizens and Contractor Connection is subject to review and approval by the state Office of Insurance Regulation, Peltier said.
Citizens officials last fall proposed creating the program as a way to combat escalating costs that the company says result when property owners — primarily in South Florida — sign over benefits of their claims to water damage restoration companies and other repair contractors. Claims with "assignments of benefits" lead more often to lawsuits and are more expensive to settle, Citizens says.
According to a proposal submitted last fall, Contractor Connection would prequalify network contractors, route jobs through its 24-hour assignment center, and use a variety of quality control checks to monitor progress. After a catastrophe, the company could draw from its network of 4,800 contractors in the U.S.
Members of a Citizens selection committee that recommended negotiating with Contractor Connection said they were impressed by the company's existing network, its oversight process, its ability to scale up in a catastrophe and the fact it would not charge Citizens any money for its service. Citizens' Board of Governors had authorized spending $15 million over five years.
The company would make money by collecting fees from contractors dispatched to repair jobs, Peltier said.
Still unanswered are such questions as: How much of a discount will customers get for agreeing to join the voluntary managed repair program, and will it be a discount off their deductible or their premium? The latter is "one logical place to go," Peltier said.
And how successful must the program be in attracting voluntary participation and lowering Citizens' claims costs to avoid the company pulling the trigger on the option that President/CEO Barry Gilway and Chief Risk Officer John Rollins warned about last fall — making a managed repair program mandatory for all policyholders?
That hasn't been decided, and creation of a mandatory program isn't part of the negotiation with Contractor Connection, Peltier said. "We are not seeking a mandatory program. This contract is for the administration of a voluntary repair program."
A spokeswoman for Crawford & Co. said officials familiar with Contractor Connection were at an industry event all week and would not be available for an interview about the program.
Citizens' plan to create a managed repair program is opposed by attorneys who represent policyholders and public adjusters hired by policyholders to help determine repair costs. Representatives of those industries say managed repair programs are designed to cut costs in large part by cutting them out of the claims process.
"We think it is a truly, truly horrible concept," said attorney Steve Geller, a lobbyist for the Florida Association of Independent Insurance Adjusters. "If you are a general contractor, who is your loyalty to when you're being chosen by an insurance company that sends you a bunch of business? Are you going to do your best to keep them happy or do your best to keep happy the homeowner who has hired you once and probably won't hire you gain? I think we know the answer to that."
Public adjusters contend that contractors affiliated with managed repair programs protect their future employment by finding ways to cut costs on repair jobs.
But Contractor Connection, in its proposal to Citizens, outlined several ways consumers would be protected:
• Property owners get a three-year workmanship warranty backed by Contractor Connection even if the contractor goes out of business.
• Customer service representatives monitor each assignment to ensure "key performance indicators are being met on a consistent basis."
• Structural repairs are reinspected and results are reported back to Citizens.
• Complaints about workmanship warrantees or damages are escalated to an issue resolution team that works with customers and contractors to resolve issues.
• Contractors must maintain minimum customer satisfaction scores and could be removed from the network for failing to perform at or above the required level, or by request of Citizens.
Before joining the network, contractors undergo a "rigorous vetting process" including criminal background certification, financial stability and credit history review, and insurance and state license compliance review. In addition, they must prove their experience with insurance property restoration and show they maintain professional facilities and equipment, the proposal states.
Paul Handerhan, senior vice president for the Florida Association of Insurance Reform, said managed repair programs will likely become more common among private insurance companies after Citizens initiates its program.
Currently a handful of insurance companies in Florida operate managed repair programs, including Florida Peninsula and Edison, which use Contractor Connection; Heritage, which offers a 10 percent discount off the deductibles of customers who agree to membership in the company's "exclusive Platinum Preferred Savings Program"; and People's Trust, which directly employs its team of repair contractors.
Handerhan and Geller each said their organizations favor creating new state laws that would force insurers to use only licensed contractors and subcontractors, share liability for all permitted work, and require workers to adhere to federal, state and local construction codes.
Geller said insurance industry opposition killed legislative bills proposing those requirements over the past two years.
Handerhan said he's heard complaints of managed repair services using unlicensed contractors who don't pull permits and perform shoddy construction work.
But if safeguards are in place, "there could be value to consumers to use managed repair," he said.